ACCA Applied Knowledge · Management Accounting · Alternative cost accounting principles
In a period, absorption costing profit was $5,000 lower than marginal costing profit. The fixed overhead absorption rate was $4 per unit and production was 9,000 units. How many units were sold?
Sales were 10,250 units. Absorption profit being lower than marginal profit means inventory fell, by $5,000 divided by $4, which is 1,250 units. Sales therefore exceeded production of 9,000 units by 1,250 units.
- A7,750
- B10,250Correct
- C9,000
- D10,000
Explanation
Absorption profit lower means inventory fell (opening inventory released more fixed overhead than was deferred). Change in inventory = $5,000 / $4 = 1,250 units decrease. Sales = production + decrease = 9,000 + 1,250 = 10,250. 7,750 wrongly treats inventory as increasing.
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